Senate Banking panel hearing on financial crisis
WASHINGTON (Reuters) - The Senate Banking Committee on Thursday is holding a hearing on the regulatory response to the financial crisis. Federal Deposit Insurance Corp Chairman Sheila Bair, Treasury Interim Assistant Secretary Neel Kashkari, Housing and Urban Development Assistant Secretary Brian Montgomery, Federal Reserve Governor Elizabeth Duke and Federal Housing Finance Agency Director James Lockhart are testifying.
Following are highlights from their testimony and comments from lawmakers.
TREASURY'S KASHKARI ON NEXT SPENDING UNDER BAILOUT PLAN
"I think it will be a few weeks before the next batch are actually funded."
"Our goal is to have the $250 billion out the door by the end of the year."
FDIC CHAIRMAN BAIR ON BANK CAPITALIZATION:
"It needs to be repeated, reiterated that banks overall are very well capitalized. Yes, we have some banks with some challenges, but the vast majority are well capitalized. This is not a solvency crisis along the lines of what we saw in the S&L days. We're dealing with liquidity issues right now.
"As the confidence problem has grown and grown, irrational fear has overtaken us somewhat. So we've seen institutions that otherwise are viable threatened with closure because they can't meet their obligations."
BAIR ON EFFORTS ON LOAN MODIFICATIONS:
"I think some of the voluntary efforts have helped but they have clearly not helped enough. We are falling badly behind and more needs to be done."
BAIR ON POSSIBLE LOAN GUARANTEE PROGRAM TO PREVENT
AVOIDABLE FORECLOSURES:
"We're having very good discussions with Treasury, and I think Treasury is doing their due diligence. We're sharing some ideas, and I know they're looking at some other things as well. We want to respect that process and adhere to that process."
TREASURY'S KASHKARI ON BANKS USING GOVERNMENT MONEY ON
ACQUISITIONS
"If we have a small bank, a failing bank, in a community, that bank is not in a position to write loans for its small businesses, its homeowners. If a larger bank, a stronger bank, is able to acquire that and capital is put into that combined entity, that community is now better served. So we have to be very careful about not discouraging prudent acquisitions because that can actually help us get through these troubled times that we're in right now."
KASHKARI ON INCENTIVES FOR BANKS TO LEND
"We want our banks to lend. But we also didn't want to be in a position of micromanaging on this. We wanted to create a program where thousands of institutions from across our country would volunteer to participate ...
"There are strong economic incentives ... to take that capital and put it to good use. Their own shareholders will demand it."
KASHKARI ON SWAPS, HEDGES
"At this point, we don't have a firm policy on what to do with any hedges associated with the assets. ... Once we identify exactly which assets we're going to buy and the purchasing mechanisms, those are important details we're going to work through."
"In the credit default swap market broadly, many participants are writing insurance contracts on assets they may or may not own. So I think that's a very important issue that we're sensitive to. I think it's an issue we need to wrestle with more broadly."
KASHKARI ON BANK INJECTIONS SAME FOR ALL
"The terms for the first nine are identical to the terms for number 10, number 100, number 1,000. There's a range of capital that a firm can take down, 1 percent of risk-related assets up to 3 percent of risk-related assets. So, the 125 (billion dollars) seems like a lot for nine institutions, but those nine institutions have 50 percent of the deposits in the country, so it's the same proportion for the first nine and number 4,000. There's no preference."
SEN. ROBERT MENENDEZ ON LOAN MODIFICATIONS
"We can no longer sit back and simply encourage loan modifications. We cannot simply ask (banks) nicely to do this. I don't believe Treasury is doing what's necessary to modify loans in exchange for an infusion of taxpayer dollars. People on Main Street are counting on banks to use the capital infusions they are getting to help lending. If banks get the money and stuff it under the mattress, we may have helped CEOs sleep better at night but we have done nothing to stimulate Main Street."
FDIC'S BAIR ON POSSIBLE LOAN GUARANTEE PROGRAM:
"Loan guarantees could be used as an incentive for servicers to modify loans. Specifically, the government could establish standards for loan modifications and provide guarantees for loans meeting those standards. By doing so, unaffordable loans could be converted into loans that are sustainable over the long term. The FDIC is working closely and creatively with Treasury to realize the potential benefits of this authority."
KASHKARI ON MARKET FRAGILITY:
"Since the announcement of our capital purchase program, we have seen numerous signs of improvement in our markets and in the confidence in our financial institutions. While there have been recent positive developments, the markets remain fragile."
FHFA'S LOCKHART ON TREASURY'S EXPLICIT GUARANTEE FOR GSES:
"Spreads have widened for the GSEs and many other issuers of securities. As confidence returns and investors understand the strength of the Treasury agreements, we would expect that to narrow."
SEN. RICHARD SHELBY ON TREASURY BUYING BANK STAKES:
"In purchasing equity stakes in publicly held companies, Treasury has deviated significantly from its original course. We need to examine closely the reason for this change and to understand how and why the nine specific firms were chosen to receive the initial $125 billion."
